BStock Solutions

We have recently had an influx of flea market dealers registering in the B-Stock Sourcing Network to buy liquidation inventory from our sellers. Overstock, returned and other excess inventory from major retailers is great for flea markets. Savvy sellers are realizing that by buying directly from the retailers, the flea market vendor can save considerably on the merchandise and therefore earn substantially more on their sales.

If you are a flea market vendor or are considering becoming one, get registered in the B-Stock Sourcing Network and find some bargain inventory. There is a ton of it out there.

An interesting new study by Accenture looking at the rising return rates in the consumer electronics business. They estimate that returns are costing retailers and manufacturers $17 billion this year (up 21% since 2007). Included in that are costs associated with “receiving, assessing, repairing, reboxing, restocking and reselling returned products,” Accenture reports. Product return rates over the past three to five years have increased for 57% of the retailers and 43% of the manufacturers surveyed by Accenture.

Interestingly, Accenture notes that just 5% of returns are related to actual product defects. They determined that 27% of returns reflect “buyer’s remorse” and 68% of returns are characterized as “No Trouble Found.” Accenture calculates that just a 1% reduction in the number of “No Trouble Found” cases could save a typical large manufacturer about $21 million in return and repair costs or $16 million for an average consumer electronics retailer.

While Accenture makes some recommendations about how retailers and manufacturers can work to lower this return rate through consumer education and assistance programs, I think they miss the lowest hanging fruit. Utilizing a Liquidation Sales Management solution like B-Stock’s could net substantially higher resale values on those returns, swamping the other costs mentioned above. To do this requires little to no additional overhead, simply a shift in how sales are managed. Any company wanting to implement such a solution could have it up and running in a matter of a few weeks.

Companies should look at their secondary market volume and ask themselves if a 30%-50% increase in that revenue (with virtually no incremental expenses) is worth spending a few hours on.

Here is a link to Edward C. Baig’s USA Today article on the Accenture study.

Overstock inventory ready for liquidation contains what I like to think of as “marketing energy”. This is a geeky analogy but illustrates how companies can multiply the residual value of overstock and other excess inventory by capturing that marketing energy rather than giving it away to a third party. Consider companies like Gilt Group, Haute Look, Rue La La, Groupon and Woot!. These companies have created billions of dollars of enterprise value by leveraging the ‘marketing energy’ created by their suppliers’ willingness to sell at a loss. That value should have gone to the suppliers directly (in addition to the sale price of their items).

A company with overstock and other excess inventory has to get rid of it. However, liquidating good products at a big discount (almost always below original cost) should be viewed as an opportunity to delight the subset of customers who get great pleasure in finding a great deal. Most companies understand that publicizing a big sale in their retail store is a great tactic to get people in the door who might not yet be customers. Or to get existing customers to buy other non-sale items along with the sale items. A giant midnight sale has an element of fun and adventure to it for many people. To make that happen, companies spend lots of money on advertising that maximize their chances for success. At B-Stock Solutions we enable you to turn the loss you are inevitably going to take on your liquidation inventory into a marketing budget to create the same impact online.

The Analogy
Think back to your high school physics class and the concept of potential energy and kinetic energy. As a reminder, a ball at the top of a ramp is full of potential energy. As it begins rolling downhill, it is converting potential energy into kinetic energy (motion). When it hits ground level and is rolling fast, its potential energy is back to 0 and its kinetic energy is at its maximum. Over time, its kinetic energy dissipates and its speed slows and it comes to rest with all energy exhausted.

A product you decide to liquidate is like the ball. Deciding to liquidate it is like placing the ball at the top of the ramp and charging it up with marketing energy. Think of the ball’s movement from left to right as it rolls as a representation of value (ignore the height of the ramp and the distance the ball moves down to keep it simple). The distance to the bottom of the ramp (again, just from left to right) is the retail price a consumer would pay for the product and the distance the ball rolls beyond the bottom of the ramp as the other, non-sale price, value created by ‘marketing energy’. Companies often overlook the other forms of value as they contemplate liquidation of overstock and excess inventory. Every ball will roll a certain distance depending on its characteristics just like every overstock product will create certain residual values depending on its characteristics.

So, with this construct in mind, consider some options you have now that you have decided to liquidate your overstock excess inventory (that is, you have placed the ball at the top of the ramp). First, you could choose to move the ball a fraction of the way down the ramp, capture the associated energy released, and let someone else take it from there (this is selling it for a small fraction of its retail value to a liquidator, a private sale company or a deal site). Or, you can post the item on a third party marketplace, like eBay. In both cases, “the roll”, or the ancillary non-cash value is captured either by the other company, not yours. Buyers think “wow, what a great deal I got on eBay”. In plain english, your product is helping build someone else’s brand, reputation and buyer base. This is how eBay built its brand among buyers…I know this because I worked there for 6 years. We leveraged the sellers’ willingness to sell for less to build the eBay brand as the place to get great deals on virtually anything.

The alternative is to use that product to build your own brand and buyer base. YOU can roll the ball down the hill yourself and capture 100% of the value it releases, including the distance of the roll beyond the end of the ramp (the value beyond the sale price). You can capture the full price a consumer is willing to pay, AND increase the conversion of visitors to your website into buyers by a factor of 5 – 10; and increase the number of visits per visitor to your site by 50%; and cross sell and up sell that buyer other, full-margin items. And there is much more.

How is this Achieved?
Any company with sufficient web traffic and the right products can leverage B-Stock’s platform to create this value. Sam’s Club has been doing this for 10 years on their website.

To do this requires thinking differently and across functions. If the liquidation team only thinks about the cash they generate, they will not strive to maximize the TOTAL value. The marketing and e-commerce teams think about new buyer acquisition every minute of every day. Companies spend millions of dollars on marketing programs to drive certain results. Why not view the loss you are inevitably going to take on your liquidation inventory as a marketing expense that carries buyer acquisition targets just like any other marketing budget. What good comes from a straight inventory write down?

If you are an online retailer with a ‘clearance’ or ‘outlet’ section on your website, give us a call and we will explain how we can help you achieve this. And we’ll explain it in plain english, not silly physics analogies.

Andria Cheng of MarketWatch reported on rising inventory levels at several major apparel brands. As you can see from the following excerpt from her report, there are important strategic reasons why these companies would benefit from implementing a Liquidation Sales Management Solution, like B-Stock’s. For a fashion company to be hamstrung from reacting to shifts in consumer preferences because they have too much cash tied up in old inventory is crazy. You can see why being able to move outdated stock quickly and not take a huge earnings hit for it can be a powerful strategic weapon.

Here is the excerpted report by Ms. Cheng:

Increased inventory levels among apparel and shoe manufacturers could mean higher discounts and gross-margin pressures if sufficient demand fails to materialize, according to a Citigroup report.

First-quarter inventory growth at clothing and shoe manufacturers has an average spread of 13 percentage points over their second-quarter sales growth estimates, Citigroup’s analyst Kate McShane said.

For instance, VF Corp. (NYSE:VFC) , maker of products including Wrangler jeans and North Face jackets sold via retailers from Wal-Mart Stores Inc. (NYSE:WMT) to Macy’s Inc. (NYSE:M) , saw its first-quarter inventory climb 24%, versus a 10% projection for second-quarter sales growth.

Sneaker company Nike Inc.’s (NYSE:NKE) most recently reported quarterly inventory growth was up 18%, compared with Citi’s sales-growth estimate of 7%, McShane said. Shoe company Timberland Co.’s (NYSE:TBL) inventory rose 36%, four times Citi’s 9% sales estimate.

While Liz Claiborne Inc’s (NYSE:LIZ) inventory declined 3%, the maker of Juicy Couture clothing and Kate Spade handbags is expected to have an even bigger 9% decline in sales, the analyst said. Under Armour Inc.’s (NYSE:UA) inventory jumped 68%, above Citi’s 35% sales-growth estimate for a company known for its compression workout clothes.

Other companies, including Merrell shoe maker Wolverine World Wide Inc. (NYSE:WWW) , Polo Ralph Lauren Corp. (NYSE:RL) and Columbia Sportswear Co. (NASDAQ:COLM) also saw inventory growth above estimated sales-growth levels, she said…

…“A ramp-up in inventories and product-cost inflation headwinds combined with an uncertain demand environment could pressure margins,” the analyst said.

With the apparel industry bracing for the rise in cotton and other costs that have hit the market and are expected to add to increased pricing pressures more dramatically in the second half, companies such as VF said they have bought some goods early to get the benefit of lower costs as the industry wrestled with whether it has leeway to pass on increased costs to shoppers.

Still, buying goods early to take advantage of lower costs has another risk that may lead to more markdowns: It may leave companies with increased fashion risk as the goods in stock give them little room to react to any last-minute fashion changes, some analysts have said.